Illinois Tool Works a Powerhouse for Income Investors
Not every stock that provides investors with incredible long-term growth is flashy. In fact, some of the biggest income-generating stocks out there could be classified as boring. Illinois Tool Works Inc. (NYSE:ITW) stock is one of them. It’s not flashy, but it’s also not a flash in the pan.
The Glenville, IL-based company, which was founded more than 100 years ago, has grown to become one of the world’s leading diversified manufacturers that specializes in industrial equipment. (Source: “Our History,” Illinois Tool Works Inc., last accessed January 12, 2021.)
Today, Illinois Tool Works operates through seven segments:
- Automotive Equipment (22% of its 2019 revenue)
- Food Equipment (15% of its 2019 revenue)
- Test & Measurement and Electronics (15% of its 2019 revenue)
- Specialty Products (13% of its 2019 revenue)
- Welding (12% of its 2019 revenue)
- Polymers & Fluids (12% of its 2019 revenue)
- Construction Products (11% of its 2019 revenue)
(Source: “Business Segments,” Illinois Tool Works Inc., last accessed January 12, 2021.)
The company, which has a market cap of $66.3 billion, generated $14.1 billion in revenue in 2019. In the third quarter of 2020, ended September 30, the company saw its revenue slip 4.9% year-over-year—but increase 29% over the previous quarter—to $3.3 billion. That shows the company was soundly rebounding from the economic slowdown brought on by the coronavirus pandemic. (Source: “ITW Reports Third Quarter 2020 Results,” GlobeNewswire, October 23, 2020.)
Illinois Tool Works’ operating margin was 23.8%, compared to 25.0% in the prior-year period. Six of company’s seven segments delivered operating margin above 20%.
Illinois Tool Works Inc. reported third-quarter earnings per share of $1.83, compared to $2.04 in the prior-year period. Free cash flow was $631.0 million, or 108% of the company’s net income. Illinois Tool Works ended the third quarter with cash and cash equivalents of $2.2 billion.
A financially robust company, Illinois Tool Works has a long history of not just providing investors with strong capital appreciation, but having an aggressive stock repurchase program and providing an attractive dividend. All of that puts more money in its investors’ pockets.
Chart courtesy of StockCharts.com
From 2000 to 2020, Illinois Tool Works stock soared by 895%, and at a compound annual growth rate (CAGR) of 11.6%.
Since 2000, Illinois Tool Works Inc. has repurchased almost half of its outstanding shares.
Perhaps most impressively, ITW stock has paid out an annual dividend since 1933 and raised its dividend for 56 consecutive years. Since 2000, the company has raised the annual dividend by 1,063%, from $0.38 per share to $4.42 per share.
On October 30, the company’s board of directors declared a dividend of $1.14 per share for the fourth quarter. Illinois Tool Works stock’s current dividend yield is 2.2%, with a payout ratio of just 66.0%—which shows that the company’s dividend payout is safe.
Illinois Tool Works has a history of raising its quarterly dividend in the third quarter. There’s no reason to believe that the company will not do the same in 2021, which would make it the 57th consecutive year that Illinois Tool Works raised its annual dividend.
The Lowdown on Illinois Tool Works Inc.
Over the last number of decades, Illinois Tool Works has made some shareholders rich. And few companies can top its dividend history.
Based on the company’s performance, there’s every reason to believe this will continue. The company’s strong operational and financial performance throughout 2020 underscores the fact that Illinois Tool Works has a strong competitive advantage that can see it deliver consistent growth in any economic environment. That’s excellent news for ITW stock investors.